Saudi Arabian investors sold shares in two petrochemicals companies yesterday, after first-quarter results failed to match analyst expectations.
Sahara Petrochemicals and Tasnee blamed their weak results on higher costs and lower selling prices as demand softened amid fears that the global economy will grow at a slower pace.
"The sector has been affected by two major challenges: naphtha, which is used to make polypropylene, has increased on higher oil prices, while demand from Asia has been weaker than usual," said Hesham Tuffaha, the head of asset management at Bakheet Investment Group.
Net income at Sahara Petrochemicals fell to 42 million Saudi riyals, a 58 per cent decline from the same period a year earlier. Analysts estimated the company would report a profit of 92m riyals.
Profit at Tasnee fell to 524m riyals, down 10 per cent from the year-earlier period. A consensus of analysts expected the company to report a profit of 599m riyals.
The profitability of Saudi Arabia's petrochemicals companies could be further reduced this year if the government increases its gas prices.
Natural gas is currently offered to producers at a fixed subsidised rate of 75 US cents per million British thermal units, even as consumption outweighs supply. The price, however, was set in 1998, when crude was at US$13 a barrel, compared with more than $100 today.
The petrochemicals sector is part of Saudi Arabia's government strategy to diversify the economy and reduce its dependence on petrodollars. The government has been unable to provide sufficient quantities, however, to keep up with the needs of a growing economy.
"The ministry of petroleum and mineral resources and Saudi Aramco are jointly working towards revising the price at which natural gas is supplied to producers," Tariq Al Alaiwat, an analyst at NCB Capital based in Riyadh, said in January.
Saudi Aramco is increasing production to boost output to 15.5 billion standard cubic feet per day by 2015, from 9.4 billion in 2010. Consumption, however, is expected to outpace supply and expand at a compounded annual rate of 8.7 per cent through to 2020, Mr Al Alaiwat added.
Sahara Petrochemicals fell 0.8 per cent to close at 17 riyals a share yesterday. Tasnee declined 1.3 per cent to 36 riyals apiece. The Tadawul All-Share Index declined 0.4 per cent to 7,581.16.